Fidic m2

TOPIC 2: STANDARDISATION OF CONTRACTS
Standardisation of Contracts
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International Design and Build Contracts
INDEX
INDEX ............................................................................................................................................................................ 3
1. INTRODUCTION ....................................................................................................................................................... 4
2. MODEL CONTRACTS .............................................................................................................................................. 5
3. STANDARDISATION OF INTERNATIONAL CONSTRUCTION CONTRACTS ....................................................... 7
3.1 Standardisation at Local Level............................................................................................................................... 7
4. NEC CONTRACT ...................................................................................................................................................... 9
5. ENAA CONTRACT.................................................................................................................................................. 11
5.1 Process Plant Model Form .................................................................................................................................. 11

5.2 Power Plant Model Form ..................................................................................................................................... 14
5.3 EPS Model Form ................................................................................................................................................. 17
6. JCT SUITE OF CONTRACTS ................................................................................................................................. 18
6.1 Constructing Excellence Contract (CE) ............................................................................................................... 18

6.2 Management Building Contract (MC) .................................................................................................................. 19
6.3 Minor Works Building Contract (MW) .................................................................................................................. 19
6.4 Design and Build Contract (DB)........................................................................................................................... 20
6.5 Major Project Construction Contract (MP) ........................................................................................................... 20
7. COMMON AND RELEVANT CLAUSES IN MODELS OF INTERNATIONAL CONTRACTS ................................ 22
7.1 Price .................................................................................................................................................................... 22

7.2 The Figure of the Engineer or the Employer’s Representative ............................................................................ 24
7.3 Variations............................................................................................................................................................. 25
7.4 Extension of Time ................................................................................................................................................ 26
7.5 Resolution of Disputes ......................................................................................................................................... 27
8. COMPARISON OF CONTRACTS ........................................................................................................................... 28
8.1 Variations to the Contract .................................................................................................................................... 28

8.2 Care of Works and Risk Allocation ...................................................................................................................... 31
8.3 Role of the Engineer ............................................................................................................................................ 32
8.4 Comparison between the Force Majeure Clauses of FIDIC and NEC ................................................................. 35
8.5 Unforeseen Ground Conditions. Who is responsible? ......................................................................................... 38
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1. INTRODUCTION
Historically the development of a country involves the planning and execution of large scale
infrastructure projects that provide the State with appropriate channels of distribution and
communication to enable their economies to develop. This requirement has resulted in the
creation of economic and legal structures that have greatly facilitated the development of
infrastructure in the different countries. This has also given rise to the concept of Project
Finance. The expression was coined by bankers and refers to specific methods of mobilising
resources to finance large infrastructure projects, which are totally or partially lacking in
resources for implementation, and which can be commercially and profitably exploited.
One of the fundamental conditions for Project Finance is that there must be a contractor
willing to assume the risks of a project thereby guaranteeing the price, time, quality, and
operation. Assuming these constraints, financial institutions are willing to provide the capital
required and accept the project itself as collateral.
To ensure that the contractor honours his obligations, different organizations and/or
countries have promoted and drafted model contracts that explicitly set out the
objectives of the project and the contractor's obligations.
In Topic 1 we have analysed the FIDIC contracts, and here in Topic 2 we will look at other
common models of contract.
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2. MODEL CONTRACTS
Standardised models of contracts are commonly used when executing engineering and
building works. That use of model contracts, drafted by different internationally
recognised institutions, has been complemented by a process of systematic
interpretation of these contracts which has set jurisprudence in the field of arbitration,
particularly from institutions such as the International Chamber of Commerce and the
International Court of Arbitration in London. International practice regarding the use of these
models is fully reinforced by the various rulings that have been made via interpretation of the
aforementioned models. This leads to greater certainty in the interpretation of contractual
terms used by the parties.
Model contracts and the way they relate to arbitration on international construction contracts,
have certain characteristics that make them unique. Therefore they include procedures for the
resolution of disputes that traditionally cite first of all the role of the “Engineer” who must, in
most cases, make a decision regarding the conflict or dispute in question.
Similarly, disputes regarding construction contracts generally arise in contexts that, in most
cases, are different from one other. For this reason, the degree of specialisation arising from
such disputes can be much greater than that of other less technical disputes.
The different disputes have given rise to many arbitration rulings that have set jurisprudence in
the field of arbitration. These rulings relate to:
 Powers and functions of the Engineer from the perspective of FIDIC contracts,
or other models.
 Interpretation of Force Majeure clauses.
 Arbitration between the parties is widely used in the field of international

construction.
 Payment clauses.
 Delays in completing the Work.
 Other miscellaneous items which are mentioned later on.
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Bearing in mind the above, in the arbitration proceedings of international construction contracts,
measures and procedures have been established to improve the quality, and therefore the
effectiveness, of the process. Thus, in 1986, the court of arbitration of the International
Chamber of Commerce (ICC), in collaboration with FIDIC and the EIC (European
International Constructors), produced a list of professional proposed by these
organizations to act as arbitrators in disputes arising from those contracts. Undoubtedly,
the creation of these updated and revised lists leads to a saving in time when selecting
arbitrators, and also ensures the high degree of specialization of the individuals which should
lead to better resolution of disputes.
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3. STANDARDISATION OF INTERNATIONAL CONSTRUCTION

CONTRACTS
With regard to the standardisation of contracts, this issue is dominated by a small number of
international organizations, including FIDIC, International European Construction Federation
(IFAC), World Bank, UNCITRAL (United Nations Commission for the Unification of
International Trade Law), UNIDROIT, and a considerable number of law firms.
UNCITRAL published the “Legal Guide on Drawing Up International Contracts for the
Construction of Industrial” in 1988, after 7 years’ work. This guide is of a very detailed and
simple manual which directly benefits each and every one of the parties involved in the drafting
international construction contracts.
3.1 Standardisation at Local Level
The standardisation process relates not just to the international arena but also to
national and local level. Countries such as the UK, Japan, France, and Germany have
made significant efforts and the different types of construction contracts have been very
successful.
3.1.1. Great Britain
The most noteworthy case is, perhaps, Britain. In Britain the first companies specialised in
the field of Construction and Engineering appeared as early as 1870. This is when the process
of standardising contracts becomes especially relevant. Nowadays, the most important models
of contract are:
 ICE7, Institution of Civil Engineers Conditions of Contracts - 7th Edition - 1999.
 JCT 98, Joint Contracts Tribunal Standard Form of Building Contract - 1998
Edition.
 IFC 98, Joint Contracts Tribunal Intermediate Form of Building Contract.
 MW 98, Joint Contracts Tribunal Minor Works Form of Contract.
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The particulars of these model contracts are substantially different to each other,
however, the fundamental or general guidelines are the same in each case.
This process of standardisation occurred due to the active participation of the so-called "Joint
Contracts Tribunal" (JCT) which was set up in 1931. For over 75 years the JCT has
produced standard forms of contract for construction, guidance notes and other
standard documentation for use in the construction industry. The main function of this
institution has been to keep the contract forms updated and in line with the needs of the
construction industry, thereby reducing the difficulties that may arise due to the use of
these forms of contract.
The most important of these standard contracts is the so-called "New Engineering Contract"
(NEC Contract). This is the legal framework for the administration of most of the construction
contracts in the UK. This legal framework can be applied to large and small construction
projects, and includes a number of documents and guidance notes necessary for the
proper administration of these.
3.1.2. Japan
In Japan the process of standardisation has developed significantly as a result of work done by
the Engineering Advancement Association of Japan. This entity has published a series of
documents and model forms that have been very influential in international markets. The most
important of these is the ENAA Model Form-International.
The model for Contract for Process Plant Construction (Turnkey Lump-sum Basis) was
published in 1992 and is a general revision of the first edition of the ENAA Model Form
published in 1986. These contractual forms are the result of years of exhaustive study by the
ENAA’s Special Committee on Contract and Legal Issues. Both editions have been well
received by Contractors and Employers in the fields of engineering and construction.
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4. NEC CONTRACT
The NEC contract was a revolutionary model form in the 90s. Certain organisations found it to
be of interest and it was used by those who wanted to change the way in which Contractors
participated in projects, in a non-adversarial manner.
NEC2 was published in 1995 and increasingly became the benchmark contract of many
organizations and businesses in the UK.
NEC3 is the result of feedback on the needs of the industry after many years of successful use.
It is the first time that NEC simultaneously launched the comprehensive and integrated family of
documents that comprises the NEC Suite of Contracts.
The family of contracts was increased to include a:
 Service Contract.
 Short Service Contract.
 Supply Contract.
 Short Supply Contract.
 Framework Contract.
The figure below gives an outline of the standard contracts in this family:
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This latest contract is in line with NEC’s standard approach and comes with its own set of
guidance notes and flowcharts.
NEC is a family of standard contracts, each of which has the following characteristics:
 Its use stimulates good management of the relationship between the two parties
to the contract and, hence, of the work included in the contract.
 It can be used in a wide variety of commercial situations, for a wide variety of

types of work and in any location.
 It is a clear and simple document - using language and a structure which are
straightforward and easily understood.
NEC is an integrated set of conditions that are designed to provide both Contractors and
Employers with a tool to facilitate agreement and results focussed on the project.
The intention is that, use of the NEC form of contract will enable us to achieve the
client's goals more often in most projects, in terms of high quality, performance of the
facilities and important aspects such as time and costs. It is also possible to set more
stringent targets for these objectives and have greater confidence that they will be achieved.
The basis of NEC is non-confrontational contracting between the parties, thereby

promoting efficient management processes. NEC is based on the belief that collaborative
work between the parties optimises project results, especially when compared to a
confrontational and non-integrated approach.
NEC is designed for use in complex global projects and is actually worded in a neutral manner,
as regards authority and jurisdiction, to achieve this goal.
As previously mentioned, NEC3 has the unique distinction of having the full support of The UK
Cabinet Office, which recommends the use of NEC3 by public sector construction
procurers on their construction projects. The NEC is also one of the forms of contract
that is officially recommended by the South African government.
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5. ENAA CONTRACT
The ENAA Contract has three Model Forms depending on the type of construction project:
 The third edition of the ENAA Model Form-International Contract for Process
Plant Construction.
 ENAA Model Form-International Contract for Power Plant Construction.
 EPS Model Form.
5.1 Process Plant Model Form
The third edition of the ENAA Model Form-International Contract for Process Plant
Construction (Turnkey Lump-sum Basis) was just published in March, 2010, revising the
1992 edition by ENAA's Special Committee on Contract and Legal Issues. Both the 1986
edition, which is the very first edition, and the 1992 edition have been well received by both
the Employer and the Contractor in the engineering and construction fields, and widely
used in many plant projects throughout the world.
The Model Form for Process Plant Construction, since its first edition, has been highly
acclaimed by the industry and used extensively for international projects related to
construction of process plants. With some modifications, it has also been used as the General
Conditions of Contract for the World Bank's Standard Bidding Documents "Supply and
Installation of Plant and Equipment".
More than fifteen years have passed since the 1992 Form was published. During that period,
the scale of projects has grown in size and the financing schemes for such large projects have
become extremely complex, thereby increasing the number of stake-holders who seek more
clarity in the allocation of risks and responsibilities. To respond to such needs of the industry
a revised version was published which fulfil such needs.
ENAA considered many factors in preparing this edition but tried to maintain the risk allocation
originally envisaged in the first edition thus limiting the possibility of any confusion among the
users accustomed to using the previous editions.
The content of this model form is:
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Contents - Process Model Form - 2010 Edition:

Form of Agreement and General Conditions
Form of Agreement
General Conditions
Part I Contract and Interpretation
Part II Subject Matter of Contract
Part III Payment
Part IV Intellectual Property
Part V Work Execution
Part VI Guarantees and Liabilities
Part VII Risk Distribution
Part VIII Change in Contract Elements
Guide Notes
Chapter I. The General Concept of the ENAA Model Form
Chapter II. Guide Notes for Agreement
Chapter III. Guide Notes for General Conditions
Chapter IV. Application to the case where No Process License is required from Contractor
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For reference (Vol.2, Vol.4 and Vol.5, 1992 Edition):

Vol.2
Sample of Appendices to the Agreement
Appendix 1 Breakdown of the Contract Price
Appendix 2 Escalation Clause
Appendix 3 Unit Rates for Changes
Appendix 4 Payment Terms
Appendix 5 Form of Letter of Credit/Guarantee
Appendix 6 Insurance Requirements
Appendix 7 Performance Guarantees
Appendix 8 Form of Bonds
Appendix 9 Project Specifications
Vol.4
Work Procedures
WP 1 Correspondence Procedure
WP 2 Payment Application Procedure
WP 3 Approval and Review Procedure
WP 4 Work Change Procedure
WP 5 Procurement Procedure
WP 6 Expediting Procedure
WP 7 Shop Inspection Procedure
WP 8 Field Inspection Procedure
WP 9 Progress Report Procedure
WP 10 Commissioning and Performance Test Procedure
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Vol.5
Form of Agreement and General Conditions (Alternative Form for Industrial Plant – Without
Process License)
Form of Agreement
General Conditions
Part II Subject Matters of Contract
Part III Payment
Part VIII Changes in Contract Elements
Schedule 1 Form of Mechanical Completion Certificate
Schedule 2 Form of Acceptance Certificate
5.2 Power Plant Model Form
The ENAA Model Form - International Contract for Power Plant Construction (Turnkey
Lump-sum Basis) was also published in 1996 to meet the growing needs for an international
contract model form for construction of power plants.
In preparing the Model Form, the ENAA Committee took into consideration, the
comments, recommendations, advice and suggestions of various sources such as the
World Bank, and other major financing institutions, potential employers and contractors,
other relevant organizations in the US, Europe and the UK.
This Model Form demonstrates flexibility and fair and reasonable balance between the
Employer and the Contractor on the various risks involved in international projects, This
Model Form is intended for a wide range of users, including in-house legal and sales personnel
and those who are involved in the various phases of actual project implementation.
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In the course of preparation of the Model Form, ENAA it was recognized that there was a
growing need for a model form of an international contract for power plant construction. It
was also recognized that power plants are a fundamental part of the infrastructure of
industrial society and also play a major role in the development of society in general, and of
industry in particular, in developing countries.
In drafting this Model, the ENAA Committee has endeavoured to incorporate some ideas,
which are fair, impartial and practical, but not generally contained in other model forms for
power plant construction contract. It makes this Model Form all the more useful for all
related parties.
The Main Features are:
 Most suitable for use in full turnkey power plant construction projects.
 Fair and reasonable balance between the Employer and the Contractor on the
various risks involved in international projects on a full turnkey basis.
 More focus is provided on and improvement made with regard to the provisions
relating to Taking Over procedures such as Commissioning and Reliability Test
and also the provisions relating to the Performance Guarantees.
 Notes for construction contracts under project finance scheme are added to the
Guide Note as an appendix.
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Vol.1(112 pages) Form of Agreement and General Conditions
Form of Agreement
General Conditions
Part II Subject Matters of Contract
Part III Payment
Part VIII Changes in Contract Elements
Vol.2(80 pages) Sample of Appendices to the Agreement
Appendix 1 Breakdown of the Contract Price
Appendix 2 Escalation Clause
Appendix 3 Unit Rates for Changes
Appendix 4 Payment Terms
Appendix 5 Form of Letter of Credit/Guarantee
Appendix 6 Insurance Requirements
Appendix 7 Performance Guarantees
Appendix 8 Form of Bonds
Appendix 9 Project Specifications
Vol.3(36 pages) Guide Notes
Item 1. Features of the ENAA Model Form and its Fields of Application
Item 2. Engineer
Item 3. Completion/Taking Over and Performance Guarantee
Item 4. Contractor’s Total Maximum Liability
Item 5. Training
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Item 6. Sub-contracting
Item 7. Environmental Conditions
5.3 EPS Model Form
The EPS (Engineering, Procurement and Supply) Model Form, which is the ENAA version of
EPC (Engineering, Procurement and Construction), combines the Process Plant and Power
Plant model forms, and is valid for the construction of any other turnkey construction
projects.
Agreement
General Conditions
Part II Subject Matter of Contract
Part III Payment
Part VIII Change in Contract Elements
Schedule 1 Delivery Certificate
Schedule 2 Acceptance Certificate
Guide Notes
Chapter I. General
Chapter II. Guide Notes for Agreement
Chapter III. Guide Notes for General Conditions
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6. JCT SUITE OF CONTRACTS

The JCT Suite of Contracts consists of contract families made up of main contracts and
sub-contracts, together with other documents that can be used across certain contract families.
The different families cover a wide range of scenarios that arise in the construction
industry.
Annex 1 includes the JCT Contract Families.
The JCT Suite of Contracts includes the following:
 Constructing Excellence Contract (CE).
 Design and Build Contract (DB).
 Management Building Contract (MC).
 Minor Works Building Contract (MW).
 Major Project Construction Contract (MP).
6.1 Constructing Excellence Contract (CE)
This contract model is appropriate for:
 Contracts for construction works or construction management services.
 All types of procurement including services.
 Collaborative and integrative working.
 Partnering.
It can also be used:
 Whether or not the procurement or works is to be designed.
 When the works are to be carried out in sections.
 For Target Cost or Lump Sum.
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6.2 Management Building Contract (MC)
This contract model is appropriate for the following cases:
 Large-scale projects requiring an early start on site but where it is not possible
to prepare full design before the works commence. The Employer is responsible
for the design, however it is not possible to prepare technical and design
specifications to be handed over to the Contractor.
 Where the works, or the design, may be of a sophisticated or innovative nature

and the participation of several specialists is required.
 Where the Management Contractor is to administer the conditions of the Contact

between the Employer and the Contractor executing the works.
The Management Contractor acting on behalf of the Employer does not carry out any
construction work but manages the Project and the Contract between the Employer and the
Main Contractor.
6.3 Minor Works Building Contract (MW)
This contract model is appropriate where:
 The work is very simple.
 The work is designed by or on behalf of the employer.
 Where the employer is to provide drawings and/or a specification and/or work

schedules to define adequately the quantity and quality of the work.
 Where an Architect/Contract Administrator is to administer the conditions.
It is not suitable where:
 Bills of quantities are required.
 Provisions are required to govern work carried out by named specialists.
 Detailed control procedures are needed.
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 Where the Contractor is to design discrete part(s) of the works, even though all
the other criteria are met.
6.4 Design and Build Contract (DB)
This contract model is appropriate:
 Where detailed contract provisions are necessary and the Employer has prepared
detailed technical specifications and requirements.
 Where the Scope of the Contract includes not only the construction works but also
the design.
 Where the Employer employs an Engineer or agent (who may be an external

consultant or employee) to administer the Contract.
It can be used:
 Where the works are to be carried out in sections.
 By both private and public employers.
Where the Contractor is restricted to design small discrete parts of the works and not made
responsible for completing the design for the whole works, consideration should be given to
using one of the JCT contracts that provide for the employment by the Employer of a Contract
Administrator by who is responsible for the complete design of the works.
6.5 Major Project Construction Contract (MP)
This model is appropriate:
 For major works where the Employer requires large-scale construction work and
where the Contractor is experienced in this type of works and is able to assume
the large risks than may arise during the execution.
 Where the parties, Employer and Contractor, have their own detailed procedures
and they only need to be modified to the specific conditions of the works.
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 Where the Employer has well prepared the technical specifications of the works
and knows what he wants.
 Where the Contractor is not only to carry out the works, but also to complete the
design and assume the design prepared by the Employer.
 The Employer employs a representative to exercise his powers and functions

under the Contract.
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7. COMMON AND RELEVANT CLAUSES IN MODELS OF

INTERNATIONAL CONTRACTS
All construction works are highly complex and contain certain risks. In most cases these are, or
ought to be, analysed by Employer and the Contractor during the period of negotiation and
included in the Contract.
Every construction contract and construction works is unique with its own particular
characteristics. There are therefore a large number of clauses in the contract that are, to
a greater or lesser extent, fundamental to the project. However all contracts contain a
group of essential clauses which the different models of contract treat in a similar way.
7.1 Price
In International Contracts one of the most important points is certainty about the price the
Employer will pay for the finished works.
One of the most important functions of the Contract is to establish and identify the risks
inherent in the works and also to clearly establish who is responsible and for which part.
The risks that may arise during the execution and life of the Contract are allocated to the
Employer or Contractor.
In practice the concept of balance of risk, in other words the principle that “risk should
be allocated to the party best able to control it” is not adhered to in most contracts. The
main reason for the lack of application of this general principle in international practice is that
public institutions, private clients and particularly financial institutions are opposed to the
balance of risk. They generally require constructors and designers to assume greater
risk than they can control, in contradiction to the principle set out above.
The assessment of risk and its allocation is fundamental when looking at the economic and
financial structure of a project. This is particularly true when determining the price to be paid
to the Contractor. The greater the risk assumed by the Contractor of the works, the
greater the price. For example, if the contract states that the Contractor must assume each
and every risk relating to the physical and geological conditions of the site where the project will
be constructed, regardless of whether they can be determined or not, the Contractor must fix a
price in such a way as to cover the risk imposed. Of course, if no adverse physical conditions
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are encountered during the execution of the works, the Employer is paying for a risk that did not
exist.
The vast majority of contract models clearly set out the allocation of risk. For example, in
the FIDIC Red Book, risk is shared almost equally between the Employer and Contractor, and if
adverse conditions arise that could not reasonably have been foreseen, the contract price may
vary.
In international contracts, regardless of the contract model used, payments can be

structured according to three specific models or a mixture of these.
7.1.1. Lump Sum
Under this method the Contractor only receives the price fixed in the Contract regardless of
the circumstances that arise when executing the works, and the costs incurred by him
during the execution.
Under this system the price may only be increased if circumstances that were not, or
could not have been, foreseen arise which prevent the completion of the works or make
them prohibitively expensive. In this case, legal practice is excessively restrictive and as a
general rule does not permit or authorise price increases in this type of contract.
Therefore this model of contract stipulates a series of events or circumstances that may
result in the contract price varying by an additional amount, for example, when the tender
and design documents do not clearly specify the works to be executed, or when changes which
need to be carried out occur in the project.
7.1.2. Bill of Quantities (BOQ)
Under this system of pricing, the parties agree itemised prices and the final contract
price is calculated using the measurements of the works actually executed and the
itemised prices in the contract.
This method may be appropriate for use in all or part of the contract, in those areas or
activities which, at the time of signing the contract have not been sufficiently defined, and
where it is more important that the works commence than that the particular unit can be defined
in order to avoid using BOQ in the contract.
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7.1.3. Cost Reimbursement
Under this system, the price the Contractor receives is linked to the expenses incurred by
him in the execution of the project, plus a set ratio or amount as profit.
It is clear that under this system the Employer expressly accepts all inherent risks in the
execution of the works as the price in the Contract is for guidance purposes only and to
indicate the order of magnitude or have a set of reference values if a system of cost
reimbursement with incentives and penalties is adopted.
An incentive system can be set up whereby if the final cost of the works or of an item is
lower than the estimate then the difference can be shared between Employer and Contractor.
This can act as an incentive for good management and the other way around if the cost is
greater.
This system of incentivised cost reimbursement eliminates the financial risk to the
Employer that this type of compensation can entail. It also avoids the Contractor being less
than thorough when controlling the costs incurred, when his earnings are more or less
guaranteed.
7.2 The Figure of the Engineer or the Employer’s Representative
In most models of international construction Contract it is common practice for the Owner-
Employer to employ an Engineer, Agent or Employer’s Representative who, generally
speaking, carries out the functions of Project Manager.
His functions include the following:
 Assess the feasibility of the construction project in all its aspects: technical,
commercial and financial.
 Plan and supervise the construction project.
 Manage the financial aspects and costs of the project on the part of the
Contractor.
It should be clear that the existence of this figure does not alter the structure of the
contract with regard to the parties involved, who are still the Employer and the
Contractor. As such, the Engineer or other figure is not a party to the Contract. Contract
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models typically define the Engineer as " the person appointed by the Owner of the works
or the Employer to act as the Engineer for the purposes of the Contract”, so that he only
has a contractual relationship with the Employer.
During execution of the works the Engineer represents the Employer before the Contractor,
with respect to the supervision of the works and when making important decisions such
as the approval of changes and variations to the work. Similarly, the Engineer often has an
additional function which is to evaluate the work executed throughout the execution of the
Contract and issue or approve the corresponding Certificates. One of his most important
functions is to analyse and decide upon extensions of time and additional costs that may
result from changes to or delays in the works.
It is also normal for most model contracts to authorise the Engineer to act as judge
between the Employer and Contractor, when conflicts arise between both parties. Despite
having been nominated by the Employer and having a contractual relationship with him, and not
with the Contractor, the contract usually states that the Engineer must act impartially when
deciding on conflicts between the parties.
Clearly if a Contractor does not agree with the decisions of the Engineer, the contract
models also contemplate other dispute resolution mechanisms, such as arbitration, DAB,
etc., which safeguard the rights of the Contractor.
7.3 Variations
The vast majority of models of international construction contracts include a clause that
permits the parties involved to modify the terms relating to the works to be carried out
and the implications on time and costs. These are known as Variations or Adjustments to
the project.
Model contracts usually contain a procedure or clause that defines how the Contractor
should be notified about Variations, and also how the Contractor should give notice to
the Employer about those Variations which, for technical of financial reasons, he is not in
a position to carry out.
Normally the Contractor is required to execute the Variation unless he has immediately given
notice to the Employer of the impossibility of executing the works, or obtaining the necessary
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materials, for this variation. On receiving a Variation for the Engineer, the Contractor shall
confirm, vary or cancel it.
In all model contracts there are a number of conditions under which the Contractor is not
obliged to comply with the Variations that the Engineer has instructed. UNCITRAL
recommends that the Contract should include a clause containing a list of reasons for
which the Contractor may reject a Variation or Adjustment.
Three examples are given below:
 If the means required to carry out the Variation are very different from those
needed to execute the original works and/or are above and beyond the capacity
of the Contractor.
 If the Variation would prevent the Contractor from fulfilling any of his other
obligations under the Contract, or unduly interfere with the fulfilment of these
obligations.
 If the Variation would hinder us from achieving the progress of the project as
specified in the contract.
The Engineer may instruct a Variation, either directly or by asking the Contractor to submit a
proposal in which case the process is more amicable since it totally involves the professional
skill and judgment of the Contractor. Most Variations or change orders give rise to changes in
the Contract price, and possibly the time for completion.
This point is treated in greater detail in Topic 7 of this Course.
7.4 Extension of Time
One of the contract documents of every construction works is a Programme, clearly setting
out the specific sequences of activities and their times, to be followed by the Contractor
when executing the works. It is important that the Contract contain a detailed Programme
which can be followed throughout the execution of the works and which allows the status of
works to be known at all times in an efficient manner.
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It is very uncommon to find construction works that follow the Programme one hundred percent,
since in most cases unforeseen circumstances arise that, in one way or another, significantly
alter the normal execution of the works and result in delays.
For this reason, model contracts set out explicitly, or in such a way as can be determined, the
Party responsible for the delays in question and who, therefore, must assume the risk of
such delays. These model contracts stipulate the delays for which the Contractor is
responsible and in which cases he is entitled to an extension of time.
As a general rule, if the delay is caused by an act or omission on the part of the Employer,
the Contractor shall be entitled to an extension of time and compensation for the costs
incurred due to the delay.
Another noteworthy point is the extensions of time that are authorised under the Contract, in
other words, pursuant to a contractual change order. If the delay is caused by an event that
is not directly referred to in the contract, then the Contractor shall not be entitled to claim
the right to an extension of time.
This point is treated in greater detail in Topic 4 of this Course.
7.5 Resolution of Disputes
The clauses on the Resolution of Disputes and Arbitration in the models of international
construction contracts are of great importance. This is particularly so when one considers the
nature of the activity, the large number of materials and services involved in this type of
contract, the duration of the works, and the international nature of the contracting parties.
The issues under dispute in this type of Contract are very complex. Therefore, model contracts
have evolved significantly with regard to the resolution of disputes and we can safely say
that nowadays these clauses provide a specific procedure for the parties to adopt when
resolving disputes between them.
27
8. COMPARISON OF CONTRACTS
Most of the different models of contract which cover the same types of works and scope
tend to treat all the issues in a similar way. However there are small differences that
cannot and should not be overlooked. The contract model proposed by the Employer
should be carefully examined so that we can negotiate it at the Tender Stage, and adapt it
our capacity or willingness to assume risks.
In the following sections, we have highlighted some of these differences in several important
points of a contract.
8.1 Variations to the Contract
Contract Clause
FIDIC 14.1Variations may be initiated by the Employer at any time prior to issuing the
Taking-Over Certificate for the Works, by an instruction for the Contractor to
(1995) submit a proposal. They shall not make any alteration or modification of the
Permanent Works, unless the Employer instructs or approves a Variation.
NEC (1995) 60.1 Variation to the work is made by a Project Manager's instruction to change
the work information. A variation may comprise deletion or addition of work or
alteration to work. It may include changes to the employer's design, to design
criteria or to performance requirements for the contractor's design.
ENAA 39.2.1 If the Employer proposes a Change, it shall require the Contractor to
prepare and furnish to the Project Manager as soon as reasonably practicable a
(1996)
"Change Proposal," which shall include the following: 1.brief description of the
Change. 2. Effect on the Time for Completion Manager. 3. Estimated cost of the
Change. 4. Effect on Functional Guarantees, if any, and. 5.Effect on any other
provisions of the Contract.
Although these three clauses seem quite similar, they should be read carefully and in the
context of the contract, as they may have important implications for the Contractor. The fine
points that should be highlighted include:
 NEC Model
o Permits changes to the design. This is dangerous if it is not linked to our

responsibility in the execution of the work.
28
o Permits changes to the scope of the work that may decrease the amount we
invoice, and maybe our margin. This condition should be limited to a maximum
amount and bearing in mind our responsibility in the execution.
o It does not mention any linkage between the variations and possible
changes in time for completion and financial compensation.
 ENAA Model
o This clause is the one that provides the greatest balance between the
parties, Employer and Contractor. In other words, the Employer has the right
to propose a Change and the Contractor has the right to set out the effects
on the work.
8.1.1. NEC Contract Variation Flow Chart
The diagram below gives the flow chart on managing variations and risks in Works as per NEC
Engineering and Construction Contract (ECC3).
Note: In Topic 6 we deal with changes and variations from the point of view of FIDIC only,
however we did not want to leave this point untouched for other types of model contract.
29
30
8.2 Care of Works and Risk Allocation
Care of Works
Contract
Risk Allocated to Employer
FIDIC 17.2When responsibility for the care of the Works shall pass to the Employer.
If a Taking-Over Certificate is issued for any Section of the Works,
(1995) responsibility for the care of the Section shall then pass to the Employer.
NEC (1995) Loss of or damage to the parts of the works taken over by the employer,
except loss or damage occurring before the issue of the defects certificate
which is due to 1. A defect which existed at take-over, 2. An event occurring
before take over which was not itself an employer's risk or 3. The activities of
the contractor on the site after take over.
ENAA 35. If, during the execution of the Contract, the Contractor shall encounter on
the Site any Unforeseen Conditions belong to Employer's Risk.
(1996)
 NEC Model
o It has the advantage that it allows for sections of the work to be taken over
by the Employer.
o Removes Employer’s Risk for damaged sections even if they are detected
after being taken over.
 ENAA Model
o Allows the Contractor to avoid assuming responsibility for the care of the works
whenever events beyond the control of the Contractor occur which could
not reasonably have been foreseen at the Tender stage.
31
Care of Works
Contract
Risk Allocated to Contractor
FIDIC 17.2 The Contractor shall take full responsibility for the care of the Works
and Goods from the Commencement Date until the Taking-Over Certificate
(1995) for the Works. If any loss or damage happens to the Works, Goods or
Contractor's Documents during the period when the Contractor is
responsible for their care.
NEC (1995) 81.1 From the starting date until the defects certificate has been issued the
risks which are not carried by the employer are carried by the contractor.
ENAA 32.1The Contractor shall be responsible for the care and custody of the
Facilities or any part thereof until the date of Completion of the Facilities.
(1996)
 NEC Model
o In a very general way, allocates the risks to the Contractor by saying "the
risks which are not carried by the Employer".
8.3 Role of the Engineer
JCT Contract NEC Project

FIDIC Engineer
Administrator Manager
General
• Administers the • Performs proactive Deemed to act for the employer and
contract and attempts to administration requiring required to obtain consents as outlined
assure the contract sum skilled judgment in the particular conditions (clause 3.1).
by ensuring that the Obtains employer authority for matters
• Collaborative role with
contractor complies with pre-agreed between the employer and
employer and contractor
its instructions contractor as necessary. Benefits from
including prescribed
ostensible authority to act on behalf of
• Has wider powers communication routes
the employer in most other instances
when acting as
• Acts in a spirit of Exercises an extensive and central role
employer’s agent
mutual trust and to the project and has the power to
• In certain instances, cooperation with the decide matters, extra-judicially,
contractual provisions employer, contractor provided such determinations are made
can be subject to a ‘fair and supervisor on a fair and reasonable basis after
and reasonable’ (condition 10.1) attempting to consult with the parties
assessment (clause 3.5)
32
 All models state that the Employer’s Representative shall act in a fair,
reasonable and balanced way between both parties.
 Define the role as being proactive and collaborative.
 Give him the power to make decisions in case of discrepancies.
JCT Contract NEC Project Manager FIDIC Engineer

Administrator
Quality Control
Issues timely • Acts as a gatekeeper to the • Issues instructions and

information relating to contractor’s design and programmed additional or modified
set out and any other forming part of the contract and use of drawings as necessary for
pre-agreed information sub-contractors. Considering and the execution of the works
as and when required accepting the contractor’s design, if and the remedying of any
any (conditions 21-23), any defects (clause 3.3)
subcontractors (condition 26) and the
• May assign duties and
proposed programme (condition 31)
delegate authority (clause
• Replies within the period for reply to 3.2) but may only delegate
any communication submitted to it by his duty to make ‘fair’
the contractor determinations with
consent of the parties
• Issues certificates to the employer
and contractor • May attend management
meetings with the
• Operates the early warning
contractor
mechanism by notifying the contractor
of any increase, delay or impairment to • Contractor sends all
performance, entering such instances design information,
in the risk register, attending risk procedures and compliance
reduction meetings, making decisions documents and attends
and finding solutions with others to inspections and testing of
overcome those risks (condition 16) works before covering up
(as and when required)
• Issues instructions dealing with acts
of prevention (condition 19)
 According to NEC, he has the capacity and the authority to approve

subcontractors and the Contractor's programme of work.
 Must respond to questions from the Contractor on time.
 Monitors the progress of the works and registers any potential delays.
33
JCT Contract NEC Project Manager FIDIC Engineer

Administrator
Time and Money
• Certifies sums due • Certifies sums due • Certifies sums due

• Assesses delay and • Decides the date of completion • Agrees the commencement
grants time and cost relief and certifying completion date, the programme for the
according to prescribed (condition 30) works (clauses 8.1 and 8.3),
provisions but subject to extensions of time (clause
• Notifies the contractor of the
overriding power to grant 8.4),variations (clause 13.1),
outcome for any claim for a
time relief as is fair and any submissions for value
compensation events and
reasonable immediately engineering (clause 13.2)
requests quotations for any
following practical and the sufficiency of the
proposed instruction or changed
completion contractor’s payment security
decision
• Issues extensions of time
• Assesses the additional cost of
which it considers fair and
the contractor not achieving a key
reasonable and reach a
date (condition 25.3)
decision as soon as
reasonably practicable • Considers compensation events,
(clause 2.28.2) their value and instructing their
implementation (conditions 60-65)
• Considers with the QS, if
employed, all interim
valuations, claims for
variations and loss/expense
resulting and issue
payment certificates as
appropriate
 Responsible for certifying sums and agreeing variations.
 Assesses and decides on claims.
 Grants extensions of time.
 Applies penalties for partial achievement of project milestones.
34
JCT Contract Administrator NEC Project FIDIC Engineer

Manager
Practical Completion
• Determines when practical completion is • Determines when • Responsible for the

achieved and issues notices of non- practical completion ‘taking over’ process for
completion, defects and can allow early achieved completion of the works
possession or sections of it.
• Assesses defects and
• Issues practical completion certificate or their value (conditions
sectional completion certificates (clauses 40-45).
2.30-2.32) or a non-completion certificate
(clause 2.31)
• After practical completion, immediately
considers the overall position on extensions
of time and exercises discretion as to
whether any further adjustment to time
should be made
• Address any actual or suspected defects
and exercises its power to specify and
require remedial action arising during the
rectification period, preparing a Schedule of
defects (clause 2.38.1) and by issuing
instructions for individual defects (clause
2.28.2) and/or making an adjustment to the
contract sum if the employer agrees that
any defects may remain.
8.4 Comparison between the Force Majeure Clauses of FIDIC and NEC
FIDIC
One of the potential difficulties with international projects is that the contracts entered into are
governed by laws which may be unfamiliar to one or other of the contracting parties.
One of the clearest examples is that of Force Majeure which is treated in many different ways
depending on the applicable jurisdiction. It is best to if the contract specifies how unforeseen
events that may arise during the lifetime of the contract are to be addressed.
The aim of the force majeure clause is to exempt a party from performance on the occurrence
of a force majeure event.
35
Bearing in mind that in this type of Contract all the responsibility is allocated to the Contractor, it
would not be commercially viable for either of the parties to financially provide for an event that
may never happen, as the additional expense might make the project unviable.
Clause 19.1 (FIDIC Silver Book) defines “Force Majeure” as an exceptional event or
circumstance:
(i) which is beyond a Party’s control;

(ii) which such Party could not reasonably have provided against before entering
into the Contract;
(iii) which, having arisen, such Party could not reasonably have avoided or
overcome; and
(iv) which is not substantially attributable to the other Party
Force majeure may include, but is not limited to, exceptional events or circumstances of
the kind listed below, so long as conditions (a) to (d) above are satisfied:
(i) war, hostilities (whether war be declared or not), invasion, act of foreign
enemies, rebellion, terrorism, revolution, insurrection, military or usurped power,
or civil war;
(ii) riot, commotion, disorder, strike or lockout by persons other than the
Contractor’s
Personnel and other employees of the Contractor and Sub-Contractors;
(iii) munitions of war, explosive materials, ionising radiation or contamination by
radioactivity, except as may be attributable to the Contractor’s use of such
munitions, explosives, radiation or radioactivity; and
(iv) natural catastrophes such as earthquake, hurricane, typhoon or volcanic

activity.
The definition of Force Majeure to be found here is very broad, and this is not an exhaustive list,
therefore there may be a problem with FIDIC if there is a contradiction between what is defined
here and what is stated in the law which is applicable to the Contract.
Therefore, incorporating a clause such as Clause 19 into a contract may duplicate or enlarge
what is provided for in the applicable law jurisdiction. In any event, the Particular Conditions
36
should reflect the fact that the Employer has verified, before inviting tenders, that the wording of
Clause 19 is compatible with the law governing the Contract.
However we must try, in so far as it is possible, to safeguard against unexpected costs in

contracts in order to limit the risk to the Contractor of events that are out of his control. When
negotiating the Contract we should include a clause which states that the following risks are not
attributable to the Contractor:
Here, the parties will be released from performance (and the Contractor entitled to
specific payment) if:
(i) any irresistible event (not limited to force majeure) makes it impossible or
unlawful for the parties to fulfil their contractual obligations, or
(ii) (ii) the governing law so provides. It acts as a fall-back provision for extreme
events (i.e., events rendering contractual performance illegal or impossible)
which do not fit within the strict definition of force majeure laid out under sub-
clause 19.1. It also grants the party seeking exoneration the right to rely on any
alternative relief-mechanism contained in the law governing the contract.
NEC
At first sight, the new NEC form, whose third edition was published in July 2005, does not
include a Force Majeure event. However, reference to the guidance notes shows that clause
60.1(19) qualifies as a Force Majeure event.
This clause refers to events which:
 Stop the Contractor from completing the works; or
 Stop the Contractor completing the works by the dates shown on the Accepted
Programme and which
 Neither Party could prevent;
 An experienced Contractor would have judged that the contract dates have such a
small chance of occurring that it would have been unreasonable for him to have
allowed for it; and
 Is not one of the other compensation events stated in this contract.
37
Thus it looks very much like a Force Majeure clause and that is exactly what it is. The drafting of
this compensation/Force Majeure event is plainly very broad. Indeed, maybe it is too broad.
Therefore, it may well be that this is exactly the type of clause that many Employers will seek to
delete or revise. Also, it should be borne in mind that under certain jurisdictions, this will mean
that no protection will be provided to the Contractor for typical force majeure events.
8.5 Unforeseen Ground Conditions. Who is responsible?
Unforeseen ground conditions can have consequences on Works that involve a lot of money
and time for some of the parties. Who assumes the risk in the different model contracts?
NEC 3
In the NEC 3 model contract the risks are allocated to the Contractor, unless what are known as
“Physical Conditions” are found on Site. "Physical Conditions" are not weather conditions
but are conditions which an experienced Contractor would have judged at the Contract Date,
and not those which had such a small chance of occurring that it would have been
unreasonable for him to have allowed for them, and to have included them in the price of the
Contract. What should the Contractor have known to make that decision? The Contractor
assumes that he has taken into account all the available information about the site, which may
have been published or may be in the public domain, and the information obtained from a visual
inspection and other information that a reasonably experienced Contractor could have been
expected to have obtained.
FIDIC
Under the FIDIC Red and Yellow Models (designed by the Employer or Contractor respectively)
the Employer bears the risk of conditions which could not reasonably have been foreseen when
submitting the Tender (4.12). However, along with the Request for Tender, the Employer must
provide all the data in his possession on the sub-surface and the hydrological conditions of the
site. The Contractor is deemed to have obtained all the necessary information that may affect
the Works and to have examined the Site data (Clause 4.10). What does "reasonably
foreseeable" mean? This question can have a wide range of replies which can give rise to
disputes.
38
The FIDIC Silver Book (for Turnkey Projects) is less favourable to the Contractor. Clause 4.10
requires the Contractor to verify and interpret the data made available by Employer, while the
Employer assumes no responsibility for the accuracy, sufficiency or completeness of said data.
Clause 4.12 allocates all responsibility for having identified "unforeseeable difficulties" to the
Contractor. Unless such clauses are changed, they constitute a significant risk to the
Contractor.
39

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TOPIC 2: STANDARDISATION OF CONTRACTS

2. MODEL CONTRACTS .............................................................................................................................................. 5

3. STANDARDISATION OF INTERNATIONAL CONSTRUCTION CONTRACTS ....................................................... 7

3.1 Standardisation at Local Level............................................................................................................................... 7

4. NEC CONTRACT ...................................................................................................................................................... 9

5.1 Process Plant Model Form .................................................................................................................................. 11

6. JCT SUITE OF CONTRACTS ................................................................................................................................. 18

6.1 Constructing Excellence Contract (CE) ............................................................................................................... 18

7. COMMON AND RELEVANT CLAUSES IN MODELS OF INTERNATIONAL CONTRACTS ................................ 22

7.1 Price .................................................................................................................................................................... 22

8. COMPARISON OF CONTRACTS ........................................................................................................................... 28

8.1 Variations to the Contract .................................................................................................................................... 28

 Interpretation of Force Majeure clauses.

 Arbitration between the parties is widely used in the field of international

 Delays in completing the Work.

 Other miscellaneous items which are mentioned later on.

3. STANDARDISATION OF INTERNATIONAL CONSTRUCTION

3.1 Standardisation at Local Level

3.1.1. Great Britain

 ICE7, Institution of Civil Engineers Conditions of Contracts - 7th Edition - 1999.

 IFC 98, Joint Contracts Tribunal Intermediate Form of Building Contract.

 MW 98, Joint Contracts Tribunal Minor Works Form of Contract.

The family of contracts was increased to include a:

 Short Service Contract.

 Short Supply Contract.

 It can be used in a wide variety of commercial situations, for a wide variety of

The basis of NEC is non-confrontational contracting between the parties, thereby

 ENAA Model Form-International Contract for Power Plant Construction.

 EPS Model Form.

5.1 Process Plant Model Form

The content of this model form is:

Contents - Process Model Form - 2010 Edition:

Part I Contract and Interpretation

Part II Subject Matter of Contract

Part III Payment

Part IV Intellectual Property

Part V Work Execution

Part VI Guarantees and Liabilities

Part VII Risk Distribution

Part VIII Change in Contract Elements

Chapter I. The General Concept of the ENAA Model Form

Chapter II. Guide Notes for Agreement

Chapter III. Guide Notes for General Conditions

For reference (Vol.2, Vol.4 and Vol.5, 1992 Edition):

Sample of Appendices to the Agreement

Appendix 1 Breakdown of the Contract Price

Appendix 2 Escalation Clause

Appendix 3 Unit Rates for Changes

Appendix 4 Payment Terms

Appendix 5 Form of Letter of Credit/Guarantee

Appendix 6 Insurance Requirements

Appendix 7 Performance Guarantees

Appendix 8 Form of Bonds

Appendix 9 Project Specifications

WP 2 Payment Application Procedure

WP 3 Approval and Review Procedure

WP 4 Work Change Procedure

WP 7 Shop Inspection Procedure

WP 8 Field Inspection Procedure

WP 9 Progress Report Procedure

WP 10 Commissioning and Performance Test Procedure

Part I Contract and Interpretation

Part II Subject Matters of Contract